Phillips 66 said that a "challenging business environment" has led it to defer or postpone several major projects and reduce its capital spending budget by $700 million.

The company said in a statement it is taking the following actions:

  • Reducing 2020 consolidated capital spending by $700 million to $3.1 billion.
  • In Midstream, the Red Oak Pipeline and Sweeny Frac 4 projects, as well as Phillips 66 Partners’ Liberty Pipeline, will all be deferred.
  • Phillips 66 Partners postponed its final investment decision on ACE Pipeline.
  • Phillips 66 does not expect DCP Midstream to exercise its option to participate in Sweeny Fracs 2 and 3 in 2020.
  • In refining, the company is deferring and canceling certain discretionary projects, which it did not name.
  • Reducing operating and administrative costs by $500 million in 2020.
  • Temporarily suspended share repurchases effective March 18. Share repurchases during the first quarter of 2020 were approximately $440 million.
  • Secured a new $1 billion, 364 day term loan facility. This facility provides additional liquidity and financial flexibility in addition to an existing $5 billion revolving credit facility. Phillips 66 Partners has a $750 million revolving credit facility.

A production dispute erupted in early March between Russia and Saudi Arabia. It stemmed from an inability of the two major oil producers to agree to cut production in response to lower demand due to the global Covid-19 outbreak. Saudi Arabia had urged a production cut, but Russia refused. In response, Saudi Arabia cut its oil price and boosted production, causing global oil prices to fall and raising pressure on U.S. production.

Affected projects

Red Oak Pipeline is a 50/50 joint venture between Phillips and Plains All American Pipeline. It is a $2.5 billion oil pipeline system to move supply from Cushing, Oklahoma, and the Permian Basin in West Texas to the Texas coast, with multiple destination points in Corpus Christi, Ingleside, Houston and Beaumont.

The company was working to expand its Sweeny Hub in Texas with the addition of three fractionators, each with capacity of 150,000 barrels per day (bbl/d). Fracs 2 and 3 were expected to start up in the fourth quarter of 2020.

Frac 4 was expected to come online in the second quarter of 2021. With the addition of Frac 4, the Sweeny Hub would have had 550,000 bbl/d of fractionation capacity.

The Liberty Pipeline was planned to be an approximately 700 mile long pipeline of up to 24 inches in diameter transporting light crude oil from Guernsey, Wyoming, to Cushing, Oklahoma. The pipeline was intended to support expected growth in the Rockies and Bakken regions.

The ACE Pipeline System was intended to move crude oil from the market hub in St. James Parish, Louisiana, to downstream refining destinations in Belle Chasse, Meraux, and Chalmette, Louisiana.